Inflation steady at 3% despite food cost rise

The rate of inflation remained static at 3% in October – defying expectations of a rise among economists and policymakers at the Bank of England.

The Office for National Statistics (ONS) said rising food prices were largely offset by falling fuel costs last month.

Forecasters had predicted an increase to at least 3.1% – a scenario that would have forced the Bank’s governor to write to the Chancellor to explain why the Consumer Prices Index measure had exceeded 3%.

Its inflation target is 2%. The Bank raised interest rates earlier this month to help tackle inflation in its belief the figure was to hit 3.2% in October.

The ONS figures are likely to reinforce doubts among some economists on the wisdom of that rate hike, which has forced up many families’ borrowing costs at a time when their spending power is already facing a squeeze.

That is because many of the price increases that have driven inflation to five-year highs were already set to fall out of the inflation calculations early next year.

Higher import costs – a consequence of the weaker pound since the Brexit vote in June last year – have been passed on to consumers. Average wage growth has failed to keep up.

The ONS said the bulk of the upwards pressure on inflation last month came from vegetables – rising 5.7% on an annual basis ahead of Christmas.

It pointed to a particular contribution from premium potato crisps.

Food prices were 0.6% higher on the previous month while energy costs were 1.3% higher reflecting the decision by British Gas to raise its default tariffs in September.

While fuel costs were 0.4% down in October compared to the previous month, rising pump prices in recent weeks are expected to loom large in November’s inflation calculation.

The pressure on family budgets is a major cause for concern among retailers in the run-up to the crucial Christmas season.

Major grocery chains reporting their progress recently have been at pains to say they are doing their best to shield shoppers from the worst of the rising prices.

Separate industry data released by Kantar Worldpanel showed inflation was accounting for much of the growth in the sector.

In reported a 3.2% annual jump in the value of supermarket sales in the 12 weeks to 5 November while sales volumes grew by less than 1%.